The Future of Chipotle

With another solid earnings report behind Chipotle Mexican Grill (NYSE: CMG) and the conclusion of a robust fiscal 2013, shares of the company ended January at an all-time high of $551.96. The fact that the general market had its worst start of the year since 2009 makes Chipotle's outperformance especially admirable.

However, Chipotle is steadily becoming much more than a one-trick pony. The company is now adding new menu items and diversifying its business into numerous restaurant brands. The following takeaways from the company's latest conference call reveal Chipotle's grand vision for future growth.

Conference-call revelationsChairman and co-CEO Steve Ells opened up the company's latest conference call by stating obvious but still important facts: "Of course we're particularly pleased that Chipotle's strength continues to be rooted in our focus on the key drivers of our business. Our unique food culture and our unique people culture and a strong economic model that allows us to do things in ways that are unusual within the industry."

Ells' statement touches on the most important aspect of Chipotle's success, which is not the company's burritos or tacos but instead its insistence on delivering top-quality food and service in a fast, convenient, and hassle-free manner. This deceptively simple but proven formula is what keeps customers coming back for more.

Even more important is that Chipotle's is a formula that can be applied to other cuisines other than Mexican food. This is the reason why management is busy introducing and building two new restaurant brands. The first new brand is ShopHouse, the company's fast-casual take on Southeast Asian cuisine.

Co-CEO Ells explained, "We also know that to really change food culture and to reach even more people is going to require that we serve more than burritos and tacos. That's why we developed ShopHouse, which follows the same model as Chipotle by using delicious quality ingredients, classic cooking techniques[,] and emphasizes a culture of top performers being groomed to be the future leaders we will need to support our growth."

Chipotle announced an investment in the second new brand, Pizzeria Locale, late last year. The new partnership with restaurateurs Bobby Stuckey and Lachlan MacKinnon-Patterson will incorporate traditional Italian wood-fired pizza into Chipotle's signature fast-casual format. Ells explained, "Like Chipotle, Pizzeria Locale has a focused menu and an interactive service format that allows customers to customize their order."

While management at Chipotle has consistently warned investors about viewing these two new restaurant brands as significant contributors to near-term growth, the long-term potential of the brands appears immense. Currently, there are only six ShopHouse locations, all of which are in the Washington, DC and Los Angeles area. However, more locations are planned to open this year, although management did not provide details.

Meanwhile, Pizzeria Locale, in the true Chipotle format, only has one location so far and it's in Denver. However, management stated it was also looking to expand the brand in the immediate area.

Aside from new brands, management is also busy working on diversifying Chipotle Mexican Grill's menu as well. The company is now offering Sofritas, a vegan alternative, at approximately 40% of its restaurant locations. The company is looking to expand the concept moving forward, which should bring in new types of consumers to Chipotle Mexican Grill.

The future of ChipotleWhile the future is always uncertain, I have a solid idea of what Chipotle can become should it remain on its current growth trajectory. I see the company moving away from being a one-trick pony like Panera Bread (NASDAQ: PNRA) and closer to a diversified, global restaurant giant like Yum! Brands (NYSE: YUM) .

The company should become less dependent on its signature brand, Chipotle Mexican Grill, over time as it continues to develop its two new brands. I expect Chipotle's brand lineup to resemble that of Yum! Brands, which owns three major food concepts in KFC, Pizza Hut, and Taco Bell.

However, Chipotle is unique in that the company's brands, although completely different with regard to food themes, could all remain high-quality concepts, unlike the cheaper-priced concepts of Yum! Brands.

Not surprisingly, Chipotle is still outgrowing Yum! Brands. However, the company is even outgrowing its smaller competitor Panera Bread. The following is a breakdown of all three companies' projected growth for 2014:

Company

Chipotle

Panera Bread

Yum! Brands

Revenue Growth 2014

16.1%

8.4%

11.7%

EPS Growth 2014

23.4%

97%

23.7%

The future is nowMy advice, which I've been giving to anyone who will listen over the last year, is to pick up shares of Chipotle, even after the stock's massive surge on Friday. The company remains one of the best investments in the restaurant industry and is still in a relatively early growth phase. Chipotle, with two new restaurant brands still in their infancy, should continue to spice up portfolios for years to come.

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